FamilyCare Medical Group – Agilon IPO & 401(k) Options

Rockbridge works with over 120 medical professionals, most of whom are in the Syracuse area. In addition to the expertise we’ve developed with providers, we have experience working with doctors at FamilyCare Medical Group. The following are two areas we are able to add value for doctors at FCMG.

 

Agilon Health IPO

 

This past spring, FamilyCare Medical Group and Agilon Health engaged in a joint venture that among other things provided FCMG doctors the ability to receive shares in an Initial Public Offering (IPO) that took place last April. Those that chose to receive the shares (which was a good idea) received shares at the IPO price of $23/share.

 

The value of the shares will be treated as earned income in 2021. To address the tax situation, FCMG arranged to pay the tax liability associated with the shares. As part of the arrangement, FCMG issued a promissory note to the Doctors which was delivered in May. You will be obligated to make five December payments, with the first (and very small) one beginning this December and continuing each December through 2025. The interest on the loan is very low at 0.89%.

 

Going forward it will be up to each physician who received shares to decide on when to sell their holding. All participating physicians have a six-month lockup period from the time of the IPO, meaning you will not be able to sell prior to the middle of October. However, if you sell at that time and the share price is higher than $23, the appreciation will be taxed as a short-term capital gain. Given the current share price of $35 this would be substantial. In making the decision of when (if?) to sell your Agilon shares we think it’s best to weigh the following:

 

  1. Sales prior to April 15, 2022 will be taxed as short-term gains/losses. If there is a meaningful gain in the share price this could mean a large tax bill.
  2. Sales prior to December 31, 2021 will add extra income to an already high income year because of the value of the shares at IPO. This could lead to an unusually large amount of income and a high marginal tax rate. Again, this assumes a decent amount of share appreciation which is currently the case.
  3. It is never good to have too much concentration risk associated with any one holding especially when it’s your employer. Holding 10%+ of your net worth in a single stock is more concentration risk than prudent investment management would recommend.
  4. You do work there and may have strong conviction about the health of the company that could sway your investment decision which isn’t necessarily a bad thing.

 

Before coming up with a concrete recommendation for any individual we’d want to weigh all the above in addition to your whole financial picture. That said, as long as the shares are at a decent gain, we probably will recommend holding them for the full year to and then selling a good chunk once the gains become long-term next April.

 

401(k) Investment Options

 

The FCMG 401(k) at Voya has a few very good investment options. These are well diversified and low-cost index funds. The plan also has several choices that come with above average fees we would want to avoid. The most notable of which are the Target-Date Funds from American Century which charge an average of 0.85% and have underperformed their benchmark over the last 10 years by about 1%.

 

Most 401(k) plans are designed to make Target-Date funds the default investment option for new employees. This is generally a fine option as they provide broad diversification and adjust the asset allocation for investors who don’t want to be hands on.

 

However, a knowledgeable investor can replicate a Target-Date fund using the index fund options for a fraction of the cost. By combining the four Vanguard index options and the Voya Fixed Account you can get the same exposure at only 0.05%. This also gives you the advantage of having the Voya Fixed Account which is providing a guaranteed 3% return, greater than any comparable investment grade bond fund.

 

How much is 0.80% in annual savings worth? Assuming you maximize 401(k) contributions for 25 years, your portfolio will grow in value to be $355,000 more by going with the lower cost investment options.

 

Furthermore, Target-Date funds are a one size fits all approach that may not align with your broader financial situation and your investment objectives for your money. In your plan, Target-Date funds are easy but probably not best.

 

 

In addition to our areas of expertise with FCMG, we provide comprehensive investment advice and investment management services for all facets of your financial life. If you’d like to learn more about how Rockbridge can help you achieve your financial goals, please reach out.

 

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National Grid Resources

Rockbridge and National Grid are both strongly rooted in the Syracuse community. As a result, Rockbridge has a significant number of clients who are employees of National Grid. Through our experience helping current clients, we have developed a level of expertise with National Grid’s benefits program. Discussed below are a few areas in which we’ve added value to our National Grid clients.

Pension Plan

One of the hardest decisions National Grid employees face heading into retirement is how to elect their pension benefits. There are a lot of options, and this decision can only be made once, so it’s important to understand the choices and how each one might impact your financial plan.

This pension plan gives you three main options as to how you can take your pension benefit.

  • Lump Sum- Roll the balance of your benefit into a tax-deferred IRA
  • Annuity- Take a stream of fixed monthly payments over yours / yours and your spouse’s lifetime
  • Mix of options 1 & 2- For example, 50% lump sum and 50% annuity

There are pros and cons to each benefit option and there isn’t one answer that fits every retiree. For our clients, we evaluate what the monthly payments options are as a percentage of the pension balance, their appetite for stock market risk, spending goals, Social Security benefits, estate planning goals, etc. before deciding which benefit is optimal for them.

401(k) Investment Options

The National Grid 401(k) plan is held at Vanguard and has plenty of good investment options. These options are well-diversified, low-cost index funds. In addition to these low-cost funds, there are some expensive funds, with expense ratios in the plan ranging from 0.01%-0.71%. Picking the right mix of funds can be difficult.

The plan also has a full range of target retirement date funds. Most 401(k) plans are designed to use a target date fund as the default investment option for all new participants, which is not a bad place to invest if you want diversification without the need to research all the investment options. However, not all target date funds are created equal (visit link here to read an article on the differences) and there are benefits to creating your own allocation from other fund choices.

We recommend implementing a goal-based allocation (mix of stocks/bonds) rather than an age-based strategy. For example, most 2020 target date funds now have a mix of 40% stocks and 60% bonds, whereas most 2025 funds have a mix of 60% stocks and 40% bonds. We want our clients to take an appropriate amount of risk to meet their financial goals, which shouldn’t change all that much between the end of their working career and retirement.

National Grid ESPP

National Grid also has an employee stock purchase plan (ESPP), which allows you to purchase National Grid stock at a 15% discount via automatic payroll deductions. In almost all situations, it makes sense to take advantage of this benefit to some degree. We help our clients figure out to what extent they should participate in this program. However, something to consider is that over time, National Grid stock will become an increasing portion of your overall portfolio, and with that comes concentration risk. We also help our clients determine what a comfortable level of National Grid stock to own looks like, and then invest the rest in a globally diversified, low-cost portfolio of index funds

Health Care Benefits

Retiring pre-65 is difficult for most people because the cost of health care on the exchange is so expensive. Fortunately, as an employee of National Grid, you and your spouse will remain covered by the plan until each of you reaches Medicare. At that point, your National Grid coverage will become secondary to Medicare. This is a unique benefit that not many employers offer today. We help our clients understand how this benefit might allow them to retire earlier than originally thought. When the time comes, we also help our clients sign up for and transition to Medicare.

These are just a few areas of expertise in which we’ve been able to help our National Grid clients. Whether you’re an employee at National Grid, or just have general questions about any of the items discussed above, please don’t hesitate to give us a call.

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How big are the largest American companies?

Somewhere between colossal and titanic. Apple, the largest publicly traded company in the world, has a market capitalization of $2.4 trillion. If it were its own country it would be slightly less valuable than all the publicly-traded stocks in Germany and slightly more valuable than those in South Korea. Microsoft is worth $2.2 trillion, a little less than South Korea, but worth more than Australia. Google and Amazon are worth $1.8 trillion and $1.7 trillion respectively, less than Australia but more than Brazil. Facebook’s value of $1.0 trillion is greater than all the stocks in Russia and Spain. Tesla and NVIDIA are worth $700 billion and $500 billion respectively, not good enough to make the trillion-dollar club, but good enough to be worth more than the stocks of Mexico or Indonesia. The stock markets of those two countries are worth about the same as JP Morgan Chase.

Each of these countries has hundreds or thousands of publicly traded companies and some of the most recognized brands in the world. The eight of them represent over $13 trillion in GDP and just shy of 1 billion in population. The eight American companies on the other hand are slightly more valuable on a market capitalization basis, have $1.5 trillion in revenue, and employ 2.2 million people. Simply put, the largest U.S. companies are very valuable.

American brands are strong, but there’s a world of growth potential if we look overseas. That’s one of the many reasons we continue to hold international stocks.

The following table summarizes the figures mentioned above.

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